Konrad von Finckenstein, Q.C.
Commissioner of Competition

As the Commissioner of Canada's Competition Bureau, I am honoured to have this opportunity to address the national sections of the American and Canadian Bar Associations.

Today's meeting is a good example of the increasing cooperation in antitrust matters taking place between our two countries. This session provides an appropriate occasion to review the current situation and discuss emerging trends with regard to international cooperation in the competition field.

As you may be aware, I am also Chairman of the Working Party on International Cooperation (WP3) under the Organization for Economic Cooperation and Development (OECD) Committee on Competition Law and Policy (CLP). However, the views that I will express today are my own and not those of the OECD.

My remarks will focus on four main topics:

• the need for greater cooperation between competition authorities;
   
• Canada and bilateralism;
   
• the challenge of a multilateral approach to globalization; and,
   
• an assessment of the main multilateral venues for antitrust.

Please allow me to first set the stage by noting some broad trends regarding economic globalization. Falling trade barriers, a revolution in communications technology and the growth of market-friendly policies have shaped a new international economic environment. Today, there is only one economy and it is global.

Capital now moves around the world more easily than ever before. Economic globalization is proceeding at a rapid rate. International trade continues to expand as a result of falling multilateral and regional trade barriers. Trade liberalization is generating growth. Canada-US trade surged under NAFTA from $1.08b in 1989 to $3.59b in 2000. Canadian exports to the US were over 3 times larger in value in 2000 compared to 1989 when the Canada-US Free Trade Agreement was signed. World trade has grown 22-fold since the General Agreement and Trade and Tarriffs (GATT) was established in 1948. More than $5 trillion in goods and nearly $1.5 trillion in services were traded across national borders last year.

Today, globalization trends are further accelerating because of the increased prominence of competition in high tech and communications markets. Recent developments in the communications industries world-wide have shown a steady movement from direct regulation to increased reliance on free market incentives. In Canada, for example, between 1995 and 2000 real investment in information and communications technology surged at an annual rate of 29%, compared to 15% for machinery and equipment overall. Consistent with these trends, trade in services is expanding rapidly. In 1999, cross-border services --international banking and finance, engineering consulting, etc.-- rose to account for nearly one-quarter of goods trade.

As a result of the growing interdependence between national economies, competition policy issues which have increasingly transcended domestic boundaries have become more complex. Worldwide the number of jurisdictions with competition laws in place has increased dramatically. In 1947, there were maybe ten national economies with antitrust regimes. Today, more than 80 countries have introduced competition laws and more than half have done so within the last decade. Nearly 50 countries have pre-merger notification requirements. An additional 25-30 countries are in the process of drafting or enacting competition laws.

Competition law is also seen as a useful measure to accompany economic deregulation, privatization and the greater reliance on market forces. But it is also true that the proliferation of antitrust laws is creating problems, especially in the area of pre-merger notification and review. International mergers are increasingly subject to review by two or more countries' antitrust authorities. Procedural problems can take many forms: an array of national requirements including diverse notification thresholds; compliance with diverse review schedules and waiting periods; and, the payment of substantial fees to the reviewing authorities. Inconsistent requirements add costs to global business. Potential delays and uncertainty can have a negative impact on business opportunities and efficiencies.

The Need for Greater Cooperation

Economic globalization and the spread of antitrust laws worldwide are creating a unique set of challenges for competition authorities.

It can be said that competition law is national, while markets are increasingly global. Yet there is no international antitrust code. The key question is how to deal with transnational competition issues in a global economy. How can competition authorities manage marketplace conduct that takes place in one nation, but has a harmful effect in another? In my view, the answer can be found by considering the evolution of competition authorities over the past fifty years.

Historically, cooperation and collaboration between competition authorities developed to help reduce frictions in antitrust enforcement resulting from the unilateral exercise of extraterritorial jurisdiction. We have all learned that applying national laws to reach and discipline anti-competitive conduct, in other jurisdictions, has clear political limitations. Unilateral action inevitably stirs international frictions and tensions. Such tensions can be better managed, even avoided, through increased cooperative mechanisms.

There are two main approaches to international cooperation-the bilateral route and the multilateral one. These two approaches are not mutually exclusive but rather mutually supportive. History has also taught us that they are on quite different time tracks- the bilateral track being the forerunner of multilateral initiatives.

Let me start with a discussion of the Canadian experience regarding bilateralism with respect to the US and the EU - our two key trading partners with which antitrust cooperation has reached an extensive and sophisticated level of development.

Canada-US

Although Canada has an antitrust regime older than the US regime, the two basically did not come into intensive contact with each other until the 1940s.

From the late 1940s to the late 50s, the Canada-US competition relationship was characterized by continuing frictions. Canada reacted adversely to US antitrust investigations into a number of Canadian industries. Opposition to extraterritoriality emerged as the recurring source of tension. The two nations first reached an informal arrangement on competition matters in 1959 in the midst of a US investigation of a patent pool among a group of Canadian manufacturers. This breakthrough led to the first attempt by the two governments to create a modus vivendi, which became known as the Fulton-Rogers understanding, named after the Canadian Minister of Justice and the US Attorney General at that time. The Fulton-Rogers understanding put in place a communications channel to manage disagreements rather than a mechanism for initiating enforcement cooperation.

Our proximity and close economic relationship ensured that there would be a steady stream of potential conflicts to resolve. Frictions reached their peak in the uranium controversy of the late 1970s and early 1980s. The informal Mitchell-Basford understanding of 1969 and a Memorandum of Understanding (MOU) signed in1984 started a process of focusing on conflict avoidance or management. The MOU included the Federal Trade Commission, for the first time, as well as the US Department of Justice, as the cooperating counterparts for the Canadian Competition Bureau.

The real turning point occurred in 1986 after Canada's adoption of a new Competition Act which included a merger review mechanism. In 1995, Canada and the US signed a new cooperation agreement. The 1995 Agreement is significant in that it is a more formal and binding version of the 1984 MOU. The Agreement provides mechanisms for cooperation on transborder consumer protection and as well as on competition matters.

Cooperation on criminal matters was moved ahead by the Mutual Legal Assistance Treaty (MLAT) which came into effect in 1990. Under the MLAT, Ottawa and Washington agreed to provide each other with assistance in all matters relating to the investigation, prosecution and suppression of specified offenses.

Antitrust arrangements between Canada and the US have become increasingly elaborate overtime. In 1996 the Taskforce on Deceptive Marketing Practices formalized a framework for the implementation of enforcement cooperation and coordination relating to deceptive marketing practices. It took a 50 year period for the Canada-US relationship to achieve intensive cooperation and the process is still continuing today. The EU relationship, however, emerged more rapidly.

Canada-EU

The 1957 Treaty of Rome, establishing the European Economic Community, set out the principle of the free movement of goods within the Community as basis for competition policy.

The European Union has a unique experience in pursuing internal market integration using competition law. The EU's antitrust rules are part of a broader competition policy which includes constraints on member states and anti-subsidy rules to promote market integration.

Merger regulations at the European Union level were introduced in 1989. Shortly thereafter, Brussels blocked the De Havilland/Aerospatiale transaction. The case involved Boeing's proposed sale of its Canada-based de Havilland plant to the Franco-Italian firm Aerospatiale /Alenia. This proposed transaction was blocked by the EU Commission after having been cleared by both the Canadian and US authorities. The EU authorities were concerned that the merger would create a firm with a "dominant" position in commuter aircraft, with no offsetting efficiencies. The North American authorities had previously accepted an efficiency defence.

The case served as a reminder that another important jurisdiction was willing to apply its law offshore and that a cooperation agreement was required to address differences and coordinate cooperation.

In 1999, Canada and the EU signed a cooperation agreement. The Agreement includes the familiar procedures for notification, consultation as well as the principle of positive comity. Today, our officials cooperate on a regular basis and Canadian officials are invited from time to time to attend EU hearings.

Canada and Bilateralism

Canada's bilateral experience with Washington and Brussels has provided us with a number of insights. The growth of bilateral cooperation creates momentum for ever more intense cooperation. A useful indicator, in this regard, is the increase in the number of notifications. Canada's bilateral agreements provide for the parties to notify one another when an enforcement activity of one might affect the important interests of the other. The parties may then coordinate their activities.

The growth of the notification volumes is a valuable indicator of expanding cooperation. Let us consider the following:

• Prior to 1995, Canada received an average of 29 notifications per year;
   
• Between 1995 and 1999, the average number rose to 46 notifications per year; and,
   
• By 2000, the number had surged to 108.

Cooperation is the essential precursor to convergence and to the development of bilateral trust. These developments, in turn, create momentum for deeper cooperation. The result is a virtuous cycle of ever increasing and deeper bilateral cooperation.

For example, in 2000, Canada revised its corporate immunity policy to include an automatic amnesty provision in line with the US leniency program. In 1997, the Canada-US Taskforce on Telemarketing created a framework for cooperation on consumer fraud with the development of joint data bases and shared information.

Canada and the US are close to finalizing a positive comity agreement that would be supplemental to the current bilateral Cooperation Agreement. In effect, this would allow the competition authority in one country to request that its counterpart initiate enforcement action. Under the supplemental agreement, the requesting party may defer or suspend, under certain conditions, its investigation pending the outcome of the enforcement activities of the receiving party.

As you may be aware, one of the biggest challenges to international enforcement of national antitrust continues to be the difficulty of obtaining evidence such as testimony or documents from a foreign jurisdiction. Our MLAT with Washington, while very useful, is at present restricted to criminal competition matters. As a result of globalization and accelerating trade and economic interaction between Canada and the US, we seek to put into place an improved mutual assistance mechanism. Currently, there is a proposed amendment to extend the MLAT model to civil competition matters. This amendment would allow Canada to enter into negotiations with the US to develop an agreement on enhanced bilateral sharing of evidence compatible with the US International Antitrust Enforcement Assistance Act.

The most significant impact of bilateral cooperation agreements has been to permit the coordination of enforcement activities. Canada's bilateral agreements provide for the signatories to notify one another when an enforcement activity might affect the important interests of the other. The parties may then coordinate their activities. The bilateral agreements provide a channel for consultation, building mutual trust among enforcement officials and facilitating the development of common understandings of the implications of various transactions.

Bilateralism will remain the dominant element of international competition policy enforcement for the next decade or two. Our key bilateral agreements will be deepened gradually to provide for enhanced information exchange on enforcement actions.

Canada's bilateral cooperation with Washington developed slowly and methodically over a 50 year period overcoming differences in market structures, legal traditions and philosophical outlooks. Cooperation with Brussels occurred over a shorter time span as a result of prior bilateral knowledge of our respective systems.

Both the Washington and Brussels processes emphasized the development of mutual trust and gradual convergence. In addition, bilateral agreements offer important opportunities for building confidence and developing relationships which improves enforcement. This history and experience inevitably shapes our thinking about multilateralism. As we think about multilateralism, it is important to remember that bilateral cooperation developed on a gradual, step-by-step basis. We need to focus on the importance of shaping a common enforcement language and on developing an understanding of each other's operational concepts. We must also not overlook the need to nurture informal contacts.

A Multilateral Approach

I will now focus on the multilateral approach. First, let me ask the question: what forces or developments serve to encourage the multilateral process? As I mentioned earlier, the rise of economic globalization coupled with the proliferation of antitrust laws across the world are critical macro-factors. In addition, as I see it, there are four substantive competition-related drivers. These are:

• Proliferation of merger review regimes;
   
• Increased detection of global cartels;
   
• Increased transborder consumer crime; and
   
• Possible access barriers.

We have just emerged from a period of unprecedented merger activity in most Western economies. One of the principal differences between the current merger wave and its predecessors is the breadth of countries involved. Unlike the merger wave in the late 1980s which was dominated by US and British firms, the recent wave has seen numerous Canadian and continental European firms making substantial cross-border acquisitions. The growing multiplicity of antitrust laws means that some large mergers and other transactions are subject to review by numerous jurisdictions; such multiple reviews may impose real costs on the parties, costs that might sometimes function as a tax on efficient transactions.

The recent spate of global cartels --graphite, vitamins, lysine-- where competitors in various countries get together privately to fix prices or allocate territories on a worldwide basis have assumed increasing prominence. Continuing success in deterring, detecting and combating international cartel activity is only possible through coordinated cooperation between antitrust authorities.

Transborder consumer crime is emerging as a significant international issue. There is no effective way to deal with this challenge other than through cooperation.

There is also the perception, although few examples exist, that market access cases in which anti-competitive horizontal or vertical restraints prevent foreign competitors from being able to compete, have also become more prevalent. Since these barriers are not government sponsored, the only way to deal with them is through cooperation on an antitrust basis.

Today, antitrust enforcement officials are keenly aware that if we fail to manage differences through effective cooperation and coordination mechanisms, there will be greater risk of disputes with adverse effects on sound and predictable enforcement.

In general terms, all the efforts at multilateralism have the following objectives:

1. To bring about procedural and substantive convergence of antitrust regimes;

2. To eliminate frictions stemming from divergent merger decisions;

3. To provide for more efficient transaction cost both for the merging parties and the antitrust authorities; and,

4. To assist developing countries to strengthen their rule of law principles, a key underpinning required for the effective development of any antitrust regime.

Impediments to Multilateralism

While the factors propelling multilateral cooperation are important, there are also significant impediments constraining its development. What are these impediments?

The overriding impediment relates to the diversity of domestic legal regimes and the vast array of legal and economic traditions in which they are embedded. These differences express themselves in a myriad of ways. Let us look at some of these factors.

Different countries have different substantive laws, so there is at least some risk of disparate enforcement. In addition, the competition philosophies and the aims of competition policy differ significantly across the globe. While we may wish that the principle of protecting consumer welfare emerges as the basic philosophic pillar of competition policy, we fully recognize that the broad objectives of efficiency and fairness --the distributional economics of competition policy-- will remain in tension, reflecting different histories and cultures around the world. Restrictive business practices, consumer protection and industrial policy characterize competition policy in a good number of jurisdictions. In addition, different legal cultures and the weakness of judicial and administrative institutions in some jurisdictions are also impediments to the emergence of a multilateral consensus.

Notwithstanding the important impediments to the emergence of multilateralism in the antitrust area, judicious experimentation with a blend of policies, paradigms and different memberships have been occurring in three major venues, namely:

• The Organization for Economic Cooperation & Development (OECD)
   
• The World Trade Organization (WTO)
   
• The Global Competition Initiative (GCI)

I will attempt to give you an overview of each venue and my view of what role they play, their potential contributions and indeed their limitations.

OECD

The OECD is the most experienced of the venues under consideration. It is the leading international forum for discussion of the role of competition among the developed economies. Over the past twenty years, the Competition Law and Policy Committee (CLP) has played a crucial role in building a consensus among its members-currently 30 in number plus 5 observers (Argentina, Brazil, Israel, Lithuania, & Russia). It serves as a venue for discussion among enforcement officials. This focus on discussion and mutual education has helped lead to greater international convergence in the analysis of competition issues, as well as greater practical cooperation between competition authorities. One of the great strengths of the OECD is that it tackles a wide-range of complex competition policy and law matters. The CLP has produced two non-binding recommendations that have been adopted by Members - Cooperation between Member Countries on anti-competitive practices affecting international trade (1995) and Hard Core Cartels (1998) - and several other reports, such as the Report on Notification of Transnational Mergers and the accompanying Framework for a Notification Form (1999).

The OECD membership is made up of like-minded competition agencies from developed nations. Its mandate cannot be readily extended to integrate developing countries. The OECD is attempting to broaden its reach. This October, the OECD Global Forum will initiate an outreach dialogue with selected developing countries.

WTO

The WTO, by virtue of the breadth of its membership which brings together both developed and developing economies and its centrality in the trade system, holds a unique place among international economic organizations. Furthermore, several WTO agreements already contain competition policy concepts or elements, although these are fragmentary. These include: the Basic Telecommunications Agreement, the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Intellectual Property (TRIPS).

At the WTO Ministerial Conference in December 1996, Members agreed to establish a Working Group to examine the relationship between trade and competition. This Working Group has undertaken educative and analytical work since 1997. A discussion of competition policy in the WTO reflects the long-standing recognition that private restraints can nullify the benefits of negotiated trade liberalization measures.

A number of concerns have been raised about the WTO venturing into the terrain of competition policy. The WTO is essentially a trade-related organization with national delegations seeking advantages for their exporters. It is not designed to protect consumers by promoting the effective functioning of markets.

I also see two additional limitations. Firstly, there are real substantive differences among nations regarding the purpose of antitrust. In the WTO Trade and Competition Working Group, many nations have made clear, as we well expected, that they are interested in competition law primarily as an instrument for economic development; others have focused on the implications of competition policy for market access and for reform of the antidumping rules. Developed countries are more concerned with how competition policy might further what we think of as competition policy's main purpose-maximizing consumer welfare.

The second limitation relates to attempts to extend the WTO paradigm of detailed rules and dispute settlement to competition policy. This is a flawed approach if applied to competition policy. Detailed rules would overlook the fundamental reasons antitrust has flourished in both Canada and the US -- enforcement has continuously adapted to take account of advances in economic thinking and changes in the marketplace. Precise norms would freeze the dynamic character of competition policy. The potential application of WTO dispute settlement would result in panels second-guessing decisions by enforcement agencies and courts. If dispute settlement were to be extended to competition obligations, this could interfere with enforcement discretion and judicial decision-making, and could also involve WTO panels in inappropriate reviews of case-specific, highly confidential business information. Canada believes that the WTO system is not equipped to handle rule-of-reason issues which weighs the potential anti-competitive effects against the pro-competitive effects of a specific behaviour.

Despite these problems, we believe that the WTO, because of the breadth of its membership and the interaction between trade and competition, offers an important forum for the development of competition rules. Canada believes that WTO Members should be required to adopt and maintain basic competition obligations. Canada sees merit in subjecting core competition obligations to the principles of transparency, non-discrimination and procedural fairness. In particular, we believe it is vital that competition law and decisions should be judicable at the national level. We support consultative and capacity-building efforts to help countries develop a modern competition regime that promotes efficient, effective and dynamic markets. We have vigorously advocated that a peer review process be employed as a mechanism to achieve convergence and compliance rather than the application of the WTO dispute settlement.

Furthermore, future competition obligations should be in the form of a self-standing code with no cross-walks to other WTO obligations. I have sensed from time to time that a good deal of the interest in a trade and competition agenda in the WTO relates not to competition policy, but to antidumping and other government regulations. Dumping should be discussed in the WTO Committee on Antidumping.

Canada is a realistic proponent of limited competition rules in the WTO. The WTO Ministerial conference will meet in Doha in November 2001, to consider launching a new round. At that meeting, Canada will support the inclusion of competition policy as a new area for negotiation.

Global Competition Initiative (GCI)

The idea for a new competition forum was first advanced in February 2000, by the US International Competition Policy Advisory Committee Report (ICPAC). The report urged the competition community to establish a new and independent forum that was more inclusive both with regard to developed and developing countries than existing fora. The new forum should promote consultation, dialogue and consensus-building. This proposal was endorsed on September 14, 2000, by then US Assistant Attorney General Joel Klein and soon thereafter by the EU Competition Commissioner Mario Monti. In February 2-4, 2001, a number of senior competition officials, including myself, as well as practitioners, academics and representatives from a number of multilateral organizations met at Ditchley Park in England to exchange initial views on the potential for such a forum. This gathering was essentially a brainstorming event. What I retain from the Ditchley meeting was that there was a broad consensus on the timeliness of this proposal in view of the challenges of growing economic globalization.

The main themes that emerged from the Ditchley event are as follows:

• all competition all the time: there was also a strong sense that competition authorities require a venue that expresses their own priorities and is devoted exclusively to competition themes;
   
• a club of all competition authorities: the forum should make a particular effort to attract officials from both established and fledgling competition law regimes. Indeed, a more precise name for this initiative would be the Network of Competition Agencies; and,
   
• practical value: there is a need for authorities to study, discuss and to formulate best practices on issues of mutual concern. The work should add practical value without duplicating activities carried on elsewhere.

A good number of critical challenges remain in defining the mission and the agenda of the forum.

We are now at a point where we need to flesh out the following key elements:

• a substantive mission must be defined;
   
• the modalities of structuring a dialogue between public authorities and strategic partners, including the bar and academics, needs to be thought through;
   
• a financing formula needs to be developed to ensure the stability and viability of the forum; and,
   
• translating the light organizational infrastructure favored by the participants into a viable method of operation.

Conclusions

As for the future, I would say that all major competition authorities today recognize that cross-national differences must not be allowed to become an obstacle to global trade and investment. These authorities are engaged in encouraging international convergence and cooperation.

Canada's international goal in the competition area is to encourage and achieve a reasonable degree of analytical and operational coherence in antitrust enforcement across a wide range of economies, antitrust laws and legal cultures. For the foreseeable future, Canada's bilateral cooperation agreements with the US and the EU will remain more advanced than cooperation within multilateral fora. These bilateral arrangements will continue to grow and to be deepened. As a result, trust and understanding at the bilateral level will expand more rapidly and more effectively. Bilateral arrangements will inevitably serve as the laboratory for modalities that at a later stage become multilateralized (e.g. positive comity).

I would thus foresee expanded, deeper and more productive bilateral agreements especially among those jurisdictions which already have close working relationships. The primary focus will be on the reciprocal exchange of evidence for use in antitrust enforcement and assistance in obtaining evidence located in the other party's territory while assuring that the confidentiality of this information will be protected. As I stated earlier, bilateralism will remain the dominant form of cooperation among the leading competition authorities in the advanced economies for the next decade or two.

Multilateralism will proceed at a slow but steady pace. The multilateral scene will be pluralistic. Different fora will be used to advance different agendas.

The OECD will remain the key forum for advanced problem identification and convergence. It has the intellectual vigour and a skilled permanent Secretariat to continuously break new ground and is best suited to considering and addressing doctrinal differences among national authorities. These efforts may produce a greater convergence of views. Even if they do not always result in Recommendations, they will increase the understanding of legitimate differences and reduce the chances of frictions when those differences come to the fore in specific cases.

A WTO agreement is needed to address trade and competition issues. I foresee a plurilateral or even a broader agreement on basic competition obligations. The central obligation should be a commitment by member countries to establish and enforce domestic competition laws. There is substantial agreement that a multilateral prohibition against hard-core cartels would be an essential first step by both developed and less-developed countries.

All WTO competition commitments should be exempted from dispute settlement. Instead members should commit to a peer review process. Peer review is a non-adversarial process which encourages substantive and procedural convergence. It is well suited to dealing with antitrust policy and laws in different economies, diverse legal cultures, systems and experiences. Peer review would also allow for a continuing dialogue on the relationship of trade and competition issues, in particular those anti-competitive practices which foreclose access.

With regard to the Global Competition Initiative, I am convinced it will happen. The main issues will be financing, avoiding overlap with existing organizations and finding a constructive model for maintaining a dialogue between public officials and professional and academic groups.

The Initiative will emerge as the principal forum for soft convergence.

Plurilateral and regional agreements, such as the Free Trade Area of the Americas will also create an additional venue for the discussion of competition issues in the Hemisphere. A similar phenomenon is also being stimulated in the Pacific region under the leadership of the Asia Pacific Economic Cooperation (APEC).

To use an analogy from the university system, I see the OECD as the graduate school. It will nurture advanced doctrines and modalities. The WTO will be akin to an introductory course in a difficult subject. The freshman will need to adapt its established rule-based, adversarial paradigm to fashion a more congenial home for competition obligations. GCI will be the training school and the science lab. It will need to experiment with many models and ideas in order to find the right formula for its critical challenges. All three venues will play a constructive mutually-supportive role in expanding multilateralism.

Thank you.